Upon first glance, if a stock is interesting but overpriced, I provide a quick rundown. Otherwise, if I come across something I like and the price is right, a full analysis and valuation report is provided.

My quick filtering method is simple and the same with every stock I look at.

Introducing American Public Education Inc (APEI)

American Public Education University

Don’t Get Scared Away Just Yet

For profit colleges have and always will be known as a “dirty” industry. As long as the school retains its accreditation, it has access to federal student aid which is where the money is at for these schools.

It’s all about meeting standards on student debt and then to adequately prepare graduates for jobs.

So it’s no wonder that the general public and many investors don’t like the industry.

American Public Education is an online only, for-profit college, but targeted towards people in the military and public service community.

About 57% of the enrolled students are actively serving in the military and the payment for these students come from a military sponsored program.

This is the big difference between American Public Education and other for profit companies that rely on federal student loan as the main source of revenue.

The fact is that a company like Corinthian College (COCO) has to tap dance around standards and other federal aid assistance rules in order to get the funding.

And it’s come to a point where the government is again stepping in and saying that colleges have to prove that they offer “gainful employment programs” to be eligible for the federal aid program.

American Public Education is much better off in this regard because a majority of its revenue is coming via the Department of Defense.

So while APEI may also get labeled as a big bad for-profit company, it can provide an opportunity to pick up shares as it usually gets tossed out along with the rest of the industry.

Always Consider the Risk

It’s easy to provide the feel good story only.

Who doesn’t like to get excited about a stock?

To limit the downside, a look at the risks should be made first.

Risk #1

The big risk is how the government classifies money from the Department of Defense going forward. Although the money does come from the federal government, it is currently exempt from the 90/10 rule which states that no more than 90% of the revenue can come via federal aid.

Other for profit educational companies are beginning to take advantage of this loophole, so it will be a matter of time before the rule is changed.

Risk #2

There is a growing number of online only courses being offered by competitors. It’s been around for a while now, but with advances in online technology, this could become a growing threat.

Risk #3

And the most obvious risk is the constant regulation and rules placed on the industry. The president wants to get involved, rules are added or modified on a yearly basis.

The Numbers

A lot of the fast growth has died down.

From 2008 to 2012, the revenue CAGR is 24%. If you extend that to the TTM revenue figure, it drops to 20%.

Despite all the paragraphs the company writes in their report about the possibility of having to increase expenses to attract more students, American Public Education has been doing a really good job of reducing Cost of Goods Sold as a percentage of revenue.

My wife and I are Christians and our focus is to love God and love people. We are proud supporters of Compassion and are grateful to be sponsoring 8 children. We are ordinary people and understand that we cannot change the world, but we can try. Call me crazy, but our dream is to one day sponsor 1,000 children around the world. Thank you for helping us achieve this one child at a time.

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